Roubini: “Deleveraging Requires The Writing Down Of Debt As Reflationary Policies Are Not A Free Lunch And Won’t Solve The Debt Overhang Problem”

Ultimately, deleveraging requires the writing down of debt as reflationary policies are not a free lunch and won’t solve the debt overhang problem (Dr. Roubini). Important case study: Japan back into deflationary territory despite huge public debt and QE (Chinn). Rather than a sign of inflation, higher long-term yields may be pointing to higher real interest rates which are compatible with a deflationary environment (BofA). The equilibrium coexistence of zero interest rates, high unemployment, deflation, rising cash balances and excess reserves points to a liquidity trap environment as during the Great Depression and Japan’s lost decade.

But America’s economic “leadership” (Geithner, Summers, Bernanke and company) are doing everything in their power to keep the giant banks from writing down bad debt (see this, this, this and this).